By Steve Hudomiet
January 1st, 2016
Fair Economy Illinois, a statewide alliance that organizes people around issues that affect the common good, is demanding that State officials stop raising taxes on working people and generate revenue through a Financial Transaction Tax (FTT) on trades at the Chicago Mercantile Exchange, the Chicago Board of Options Exchange, and the Chicago Board of Trade.
To put the demands into action, 150 activists from the Moral Mondays coalition, organized by Fair Economy Illinois, held a protest downtown recently. After a rally at the Thompson Center, the demonstrators shut down LaSalle Street and proceeded to the Board of Trade, where they blocked the entrances to the building. Police officers responded by arresting 41 demonstrators.
A bill proposing an FTT, also known as a “Robin Hood Tax” or “LaSalle Street Tax,” came before the legislature in Springfield but has not garnered much support among elected officials in the city or the state.
According to Fair Economy Illinois, an FTT as small as .002% of the average trade at the exchanges could raise $10 billion annually for Illinois. The FTT proposal comes at a time when Illinois has been without a budget since July, due to an impasse between Governor Bruce Rauner and the State Legislature. The clients of some State agencies, particularly those that provide social services, particularly feel the pinch from the budget cutbacks.
“You and I will soon pay 10.25% sales tax at the store,” said Toby Chow of Fair Economy Illinois. “Right now, big banks and corporations buying stocks and futures in Chicago don’t pay a cent.”
‘Tiny tax’ could mean billions
“A tiny sales tax amounting to less than .002% of the average contract value would scarcely be noticed by the big corporations that will pay it, but it would generate billions of dollars for vital resources that we need in our communities,” Chow said. “Imagine all the people we could put back to work by rehiring laid-off teachers, fixing our crumbling streets and public transit, and by providing the top quality education, infrastructure, healthcare, and social services we desperately need.”
Fair Economy Illinois is not the first group to call for an FTT. During the 2012 NATO (North Atlantic Treaty Organization) conference in Chicago, National Nurses United called for a tax on securities trades to pay for unmet societal needs. Tax proponents note its fund raising capabilities and point to the cutbacks in Staterun social assistance programs during the current budget stalemate as examples of how its funds could be used.
A majority of social assistance agencies have been forced to curtail services, cut back on employees, or even shut down.
“Rauner and his billionaire friends would have us believe the cuts are necessary,” Chow noted. “We’re told that there is no alternative. We are told that the State just does not have the money to fund vital social services, but we know that that is a lie.
“The wealthiest individuals in this State pay far less than their fair share in taxes, and two-thirds of corporations that do business in Illinois pay nothing, nothing in income tax to the state,” Chow added.
Commenting on what a permanent solution to the budget issue would be, State Representative Will Guzzardi (D-39th, Chicago) said, “We know what a fair solution to this crisis looks like. It looks like progressive revenues that ask the very wealthy and the biggest corporations to pay their fair share and fund the resources we need.”
“The only long-term solution to this crisis is making sure that we have a tax system that moves from being primarily for the wealthy and those who are well connected to one that prioritizes the middle class,” State Representative Christian Mitchell (D-26th, Chicago) said.
Both Guzzardi and Mitchell favor the FTT.
“Right now, too many working families in our state are struggling to get by, and government is making matters worse by balancing its budgets on the backs of these very same families,” Guzzardi added. “Meanwhile, the wealthiest individuals and biggest corporations just keep getting richer, and pay less taxes than we do,” Guzzardi said. “That’s why I support a Financial Transaction Tax: we need share just like the rest of us.”
In an example of the way the tax could work, there could be a $1 fee for a transaction if it was for an agricultural item or a $2 fee if it was a transaction involving a non-agricultural item. These could be flat fees regardless of the amount of the stock. This results in higher tax rates for smaller trades and lower tax rates for bigger trades. So in a trade of $1,000, the tax rate would be 0.1% if it was agricultural or 0.2% if it was nonagricultural.
Fair Economy Illinois points out that most trades on these exchanges are much bigger than that example and that for most trades, the tax rate would be far less than what consumers pay in sales tax at the store.
Large businesses and traders on the Chicago exchanges feel less enthusiastic about the tax on market transactions. In addition to diminishing their profits to some extent, they oppose the tax because they believe it will reduce market trades, resulting in some shrinkage in the economy.
Some also fear the real cost of the tax eventually may be passed on to financial services consumers, such as pension and mutual funds, instead of the tax’s intended targets: large corporate and speculative traders. Also, financial markets could move, relocating to areas that do not have a transaction tax.
Dale Rosenthal, Clinical Assistant Professor of Finance at the University of Illinois at Chicago, contends the tax’s effects could be destructive to the economy.
“By way of example, France and Italy enacted transaction taxes of 0.2% and 0.1% on their stock markets,” Rosenthal said. “Comparing them to the rest of Europe, which did not enact such taxes, our research and others show that France saw volume fall off 20%, and volatility increased by 18% in Italy. Trading costs increased slightly, and we suspect only slightly because we have heard reports of people avoiding the tax. Worst of all, stocks in these two countries are now worth 3.5% to 4% less than in the rest of Europe.
“Economics tells us that if we tax something, we get less of it,” Rosenthal continued. “Well, most academics and central bankers think we need more, not less, of markets like the ones we have in Chicago.
“This proposal misses one key fact. The possible effects that we found in our research are nasty; so nasty that when firms are faced with those costs, they will just move. This might seem unlikely, but New York City repealed a transaction tax because they saw a loss of jobs. Sweden tried such a tax only to see their bond market move to London,” Rosenthal said.
Steve Brown, media spokesperson for House Speaker Michael Madigan, noted that the speaker has not taken a position on the FTT. Brown did say that the concern with the tax is the possibility of driving the exchanges out of Illinois, noting “it’s a mobility issue with the exchanges, and it would be easy for them to flip a switch” on their servers “and they could be gone.”
He added that Rep. Mary Flowers (D-31st), sponsor of an FTT bill, does not at this time have a majority of support for it in the Illinois House.
The Offices of Governor Rauner and Senate President John Cullerton did not respond to Gazette requests for comments.
More FTTs in Europe
Despite the potential negatives, 11 members of the European Union are scheduled to implement Financial Transaction Taxes in 2016.
Addressing the issue of exchanges leaving to flee taxation, Kristi Sanford, communications director for the Illinois and Indiana Regional Organizing Network and part of the Fair Economy Coalition said, “After getting their $77 million annual tax break from Springfield, the CME [Chicago Mercantile Exchange] has no incentive to leave.”
Supporters of the Financial Transaction Tax feel it is fair that the financial services sector contribute revenue for the public good because many view that sector as being responsible for the economic issues of 2008 and 2009. In addition, implementing the tax could reduce short term trading, which could lessen market volatility.
Fair Economy Illinois points out that most of those opposing the Financial Transaction Tax are big money corporations and interests, and that fact has made many politicians leery of supporting the idea. According to Fair Economy Illinois, three out of four North Side voters supported the tax in a ballot referendum.
“We are trying to unite people who are in favor of this tax and the revenue it can produce,” Chow said. “Those that support the idea are certainly a vast majority. We have researched broad economic issues” related to the effects of the tax “and there are myths out there that help perpetuate opposition to it,” Chow stated. “The revenue would be billions of dollars, and heath care, child welfare, education, and the State’s infrastructure would all benefit.”
To learn more about Fair Economy Illinois and the Financial Transaction Tax, go to www.faireconomyillinois.org/.